Resilience amid Challenges: Sri Lanka’s Supermarket Sector Shows Growth Potential

By: Staff Writer

October 14, Colombo (LNW): With inflation returning to single-digit levels and expected to stabilize further, retail sector growth is anticipated in 2024, according to several leading retail traders. This recovery is projected to be fueled by increased consumer spending, the revival of tourism, and rising investment activities.

The local retail sector plays a vital role in Sri Lanka’s economy, contributing over 30 percent to national GDP and accounting for 14 percent of direct employment.

 As the economy continues its recovery, the retail sector is poised to be instrumental in driving growth and generating employment opportunities throughout the country.

Since 2023, Sri Lanka’s consumer market has encountered substantial hurdles, although the supermarket sector has displayed relative stability, supported by the demand for essential goods.

In the second quarter of 2024, despite ongoing economic struggles, including variable inflation and a sluggish economy, the supermarket sector recorded modest growth.

This increase is attributed to a slow recovery in consumer spending, particularly in urban areas where the demand for essential items remains robust. In contrast, rural areas continue to face challenges due to elevated living costs and diminished purchasing power.

A report from the Trade Ministry underscored rising sales volumes in supermarkets, driven by heightened household consumption and improved supply chain conditions.

Although the sector exhibited signs of resilience, cautious optimism prevails, particularly in light of the upcoming Presidential election on September 21, which has resulted in a conservative approach within the industry.

Retail sales are on the rise, and private credit is expected to increase in the latter half of the year, provided that businesses commence investments in expansion, as stated by Central Bank Governor Nandalal Weerasinghe.

Currently, however, businesses are prioritizing de-leveraging following the currency crisis and renegotiating older loans to secure lower interest rates.

This de-leveraging is critical for strengthening financial stability and preparing businesses for future growth opportunities.

The John Keells Group’s Q1 2024/25 performance review revealed that its supermarket segment had a strong quarter, with same-store sales increasing by 12 percent, driven by a surge in customer visits.

Nevertheless, consumer discretionary spending is likely to moderate in the short term due to reduced disposable income, potentially impacting the demand for non-essential products.

Despite these challenges, the supermarket sector is expected to remain insulated, as essential items constitute a significant part of consumers’ shopping baskets.

Cargills PLC, which operates the Food City supermarket chain nationwide, reported a year-on-year revenue increase of 12 percent for the three months ending March 31, 2024, amounting to Rs. 54,403 million.

However, the operating profit for this quarter declined by 19.5 percent compared to the previous year, primarily due to rising electricity costs, increased VAT, and the elimination of the VAT exemption on locally produced dairy products.

Nonetheless, the company’s profit after tax grew by 4.9 percent year-on-year, showcasing the sector’s resilience.